Question 5
The share price of multi-business firm Wow! is $10.00. Using the average earnings multiples of focused peers, a sum-of-the-parts analysis gives an equity value per share of $8.70. From just this information, which conclusions are we most comfortable making?
Earnings are an input to a SOTP. A lower SOTP indicates that the earnings of Wow! are valued more than those of focused peers, i.e. Wow!’s earnings multiple is greater.
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